China's Shift to Digital

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Online shopping is transforming the face of China’s economy and putting pricing power in the hands of its 1.37 billion consumers.

China has promoted greater use of the internet to spearhead economic reform and foster the development of a consumption-led economy.

For decades, mainland China’s expansion was powered by low-value-added manufacturing – cheap toys, shoes and textiles “Made in China” and exported to the rest of the world. The focus now is increasingly on making the country’s economy more productive, innovative and market-oriented.

Chinese consumers have adopted the digital world with lightning speed. Just a decade ago, there were fewer than 100 million internet users in mainland China, about 7 per cent of the population. Now, nearly 50 per cent of the nation is online, with some 667 million internet users as of June 2015.

The country is the world’s largest e-commerce market: online retail sales in mainland China totalled RMB3.87 trillion (USD589.61 billion) in 2015, up 33.3 per cent from a year earlier, according to official data.

This eager embrace of the internet has injected transparency and competition into the mainland Chinese economy, ensuring that quality, price, efficiency and service are rewarded more than ever before.

But the real impact will come if these market forces take root across all parts of the economy – in particular, the country’s large state-owned sector.

Mainland China’s approximately 150,000 state-owned enterprises employ more than 30 million people and contribute nearly a third of China's GDP. Their actions have a big impact on the speed and direction of China’s economic rebalancing.

Not all state-owned enterprises have been quick to harness the internet. However, those that do can reap substantial benefits. Chinese authorities have seen the successes in the private sector and are now encouraging change in the state-owned sector, too.

In March 2015, Premier Li Keqiang announced the “Internet-Plus” initiative. This aims to encourage China’s manufacturers to deploy mobile internet, cloud computing, Big Data analysis and other tools. It promotes the development of internet banking, mass entrepreneurship and innovation. It also aims to support higher-tech approaches in agriculture, energy, finance, public services, logistics, e-commerce, traffic, biology and artificial intelligence.

China spent RMB430 billion in 2015 to improve the country’s internet system. A further RMB700 billion of public funds will be spent in 2016 and 2017.

These policies could help provide momentum for China in the years ahead. They will create new markets for innovative products and services. And they will generate jobs for workers with digital and high-tech skills. In the long term, China’s digital economy will help its international ambitions.

The heavy capital investment and labour force expansion that fuelled China’s rise over the past three decades cannot be sustained indefinitely. The country’s embrace of the internet can ultimately support China’s goal of creating a more sustainable digital economy. China’s policy makers, and the country’s online shoppers, are helping to bring that change about.